The fixture was viewed by Palestinians as another symbolic step towards confirming their credentials for the state they intend to establish in the Israeli-occupied West Bank and the Gaza Strip.
"This is another occasion on which we can show we are a state, every time I come here it makes me proud," Palestinian Prime Minister Salam Fayyad told Reuters at the Faisal Husseini stadium.
"From now on Palestine will always have to play in their homeland, no more matches in foreign countries," he told Reuters.
Until October 2008, when they hosted Jordan in a friendly international at Al-Ram, Palestineplayed all their matches abroad because football's world governing body FIFA deemed the Palestinian territories unsafe to host visiting teams.
"I am very proud to see for the first time an official match... but we should all focus on the fact that we can build bridges with sport to build bridges between the peoples of this area," he told Reuters.
Abdulhamid Abuhabib scored Palestine's goal with a spectacular volley from the edge of the area in the 43rd minute and they had at least two other good chances to score on the fast, artificial pitch that made ball control difficult.
Abuhabib's goal sent the 16,450 fans into wild celebrations in cold, wet conditions but it appeared to get the better of both the fans and the players as the match went to penalties.
